The Nationwide Financial Council chief Kevin Hassett is instantly the identify to beat within the race to switch Jerome Powell on the Federal Reserve. Prediction markets are leaning his means; President Donald Trump cheekily hinted that he “knows who he’s going to pick”; and the White Home stated it’s aiming for a Christmas reveal. However among the many economists and former colleagues who’ve identified him for years, reactions vary from enthusiastic to deeply uneasy.
To his supporters, Hassett is a superb coverage architect and, as longtime ally and former Trump advisor Stephen Moore places it, a “hard money guy” who will defend the greenback. To a few of his former friends, nevertheless, he has morphed into one thing way more regarding as an advisor to the president: a political loyalist keen to sacrifice institutional independence—and goal fact—to please his boss.
The White Home didn’t reply to Fortune’s request for remark by press time.
From pleased warrior to Trump’s chief rate-cut salesman
To grasp why the change alarms a few of his onetime colleagues, it helps to recall Hassett’s intensive expertise.
Earlier than Trump, Hassett was a totally institution conservative economist. He did stints on the Fed and Columbia Enterprise Faculty; suggested the presidential campaigns of John McCain, George W. Bush, and Mitt Romney; and held posts on the American Enterprise Institute and Hoover Establishment. His 2017 nomination to chair the Council of Financial Advisers drew a letter of assist signed by heavyweights throughout the political spectrum, together with former Fed chairs Alan Greenspan and Ben Bernanke.
Inside Trump’s first-term White Home, he turned a central determine in designing and promoting the 2017 company tax cuts, arguing they might spur funding and manufacturing. He returned later as a senior advisor on COVID-era financial coverage, and now runs the Nationwide Financial Council, placing him on the heart of Trump’s second-term agenda.
He has additionally echoed Trump’s assaults on the central financial institution and the statistics it depends on: accusing Fed officers of placing “politics ahead of their mandate”; calling the central financial institution “late to the game” in slicing charges; and suggesting there’s a partisan “pattern” within the jobs information produced by the Bureau of Labor Statistics. When Trump fired BLS Commissioner Erika McEntarfer and accused her of “rigged” numbers, a smiling Hassett went on TV framing the transfer as a matter of accuracy and course of.
That’s the place a few of his outdated allies peeled off.
“If you’d asked me a year ago, I would have said I think Kevin would be a good pick,” stated Dean Baker, a progressive economist who has coauthored papers with Hassett and beforehand supported him for the CEA. “I wouldn’t say that today. Kevin has been incredibly dishonest.”
Baker, who has spent a long time dissecting BLS information, known as Hassett’s discuss of partisan bias “not the least bit serious,” noting that the company’s methodology is public and consistently refined based mostly on inner and exterior analysis. The priority, in his view, is much less that Hassett genuinely believes the numbers are “cooked” and extra that he’s keen to say issues he is aware of are false as a result of it’s what Trump desires.
“I would not count on him doing what he, in his professional opinion, thinks is correct, as opposed to what Donald Trump tells him to do,” Baker stated.
He factors particularly to the distinction between Hassett and Bernanke. Like Hassett, Bernanke served because the CEA chair for a Republican president (George W. Bush) earlier than shifting to the Fed.
In contrast to Hassett, nevertheless, “Bernanke never compromised himself as head of the council,” Baker advised Fortune. “He defended Bush’s policies, which is what you expect, but he didn’t say things that were just blatantly untrue.”
Hassett’s willingness to offer mental cowl for Trump’s grievances extends past information. He has additionally floated a authorized idea for a way the president might fireplace Powell earlier than his time period ends.
In July, Hassett prompt that value overruns on the renovation of the Fed’s headquarters in Washington, D.C.—the Eccles Constructing—might represent “cause” for removing. He cited a determine of $700 million in overruns on the $2.5 billion challenge, characterizing it as mismanagement which may have given Trump the authorized opening he has lengthy sought to oust Powell.
The case for Hassett
Inside Trump’s orbit, the critique that Hassett is a Trump loyalist is dismissed as institution hand-wringing. Moore, the previous Trump advisor and senior fellow on the Heritage Basis, argued that Hassett is precisely what the physician ordered.
“I can’t think of anybody better,” Moore advised Fortune. “[Kevin] understands the purpose of the Fed is to keep inflation under control.”
William Seaside, a former BLS commissioner and a Trump appointee who has identified Hassett for 25 years, provided maybe the strongest protection of all.
Seaside known as Hassett “a fine economist” with deep information of the banking system and a uncommon potential to speak clearly, expertise that, he stated, are important for any Fed chair.
When pressed on Hassett’s skepticism of BLS jobs information, Seaside declined to weigh in and appeared irritated, saying solely that the Federal Reserve “will always rely on the best statistics available.”
The hesitancy contrasted with Seaside’s personal previous feedback. In a earlier interview with Fortune, he had forcefully criticized efforts to painting official jobs information as politically manipulated, warning that undermining belief in federal statistics is “highly dangerous” as a result of “markets rely so heavily on the jobs report.”
On this case, although, Seaside targeted squarely on his lengthy relationship with Hassett and on what he described as his “sound judgment,” saying he had “confidence [Hassett] would put the interests of the Fed and the U.S. economy first.”
The Inflation Danger Premium
Whereas Hassett celebrated the market’s preliminary response to studies that he’s the front-runner to switch Powell, veteran Fed watchers see warning indicators flashing within the bond market.
Jon Hilsenrath, a senior advisor at StoneX and former Wall Road Journal Fed correspondent, famous that the fast uptick within the 10-year Treasury yield is critical.
He argued in a LinkedIn publish that the upper yield suggests bond merchants are betting {that a} Hassett-led Fed may be softer on inflation, necessitating larger long-term yields to compensate for that threat.
Moreover, Hilsenrath added that whereas a yield close to 4% may appear manageable, it’s really “exceptionally low” on condition that inflation stays above the Fed’s 2% goal and price range deficits are close to $2 trillion. If the bond market loses religion within the Fed’s independence, that disconnect might appropriate violently, sending charges hovering.
It displays the “Mickey Mouse” hazard Baker warned about: an administration that appears amateurish with employees too intimidated to appropriate the president and a Fed perceived as compliant, risking a revolt from the bond vigilantes.
“You have people who might understand the way the economy works, but they’re scared of Trump,” Baker stated. “And at the end of the day, he’s the one who calls the shots.”
